The IRS files federal tax liens against taxpayers who have unpaid tax obligations. This gives the government the right to keep a person’s property until the person pays the taxes owed. Here’s how to understand an IRS tax lien and what you can do to release it.
When you don’t pay your tax debt, a federal lien secures the government’s interest in all of your property, including real property, personal property, and financial assets.
After putting your balance due on the books, the IRS sends you a Notice and Demand for Payment asking you to make a full payment within a specified time period.
If you neglect or refuse to pay the debt in full on time, a federal tax lien may be filed. The IRS will file a public document, the Notice of Federal Tax Lien, to alert your creditors that the government has a legal right to your property.
However, a lien is just an encumbrance and does not result in an actual transfer of property, as this requires the IRS to levy upon the property.
The IRS tax liens affect the taxpayer in different ways:
- Assets: a lien applies to all of the taxpayer assets, (such as property, securities, vehicles) and any future assets acquired during the life of the lien.
- Credit: once the IRS files a Notice of Federal Tax Lien, it may restrict the taxpayer’s ability to get credit.
- Business: a lien attaches to all business property and to all rights to business property, including accounts receivable.
- Bankruptcy: if you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien can continue after the bankruptcy.
Upon non-payment of your tax debt, the IRS will notify you in writing that a lien will be filed.
If you think the lien is being filed in error and that you don’t owe the taxes the IRS says you do, then you can file an appeal.
But if no mistake has been made, the IRS will file a document with the Public Records office to inform your creditors of the federal tax lien and the legal rights the IRS has to your property.
The IRS has a time limit to enforce the lien before it expires. Generally, the expiration term is ten years, but there is a possibility that the term to enforce the federal tax lien may be extended.
The best way to get rid of a federal tax lien is to pay the tax debt in full. Once you make the payment, the IRS releases the lien within 30 days.
However, when the conditions are the most convenient for the government and the taxpayer, there are other options to get rid of a lien.
- Discharge of property: this alternative removes the lien from a specific property. Eligibility for a “discharge” is determined by certain provisions of the Internal Revenue Code (IRC). For more information, see Publication 783, Instructions on How to Apply for a Federal Tax Lien Discharge Certificate.
- Subordination: although this option does not remove the lien, it allows other creditors to get ahead of the IRS, which can make it easier for you to access a loan or a mortgage. To make sure you qualify, see Publication 784, Instructions on Applying for a Federal Tax Lien Subordination Certificate.
- Withdrawal: this alternative eliminates the Public Notice of Federal Tax Lien and ensures that the IRS will not compete with other creditors for your property. However, you will still be responsible for the amount due. For more information, see Form 12277, Request to Withdraw Filed Form 668(Y), Notice of Federal Tax Lien (Internal Revenue Code Section 6323(j)).
If you have an outstanding debt with the IRS, you can try requesting one of the following collection alternatives:
We recommend that you consult with a tax professional before making any decision about the best alternative to resolve your tax debt.